Making the Most of Charitable Donations

August 8, 2022

Topics: RMD | Charitable Giving | Tax tips | Taxes | Estate Planning | Distributions | Trusts | Wills

Media type: Article, Podcast

Making the Most of Charitable Donations

3.8 minute read • 

August 8, 2022

Like saving for a home, retirement, or any other long-term goal, charitable giving requires a strategy. Having a formal plan in place and updating it annually can help you achieve your philanthropic goals while maximizing your tax savings.

Here are 5 long-term strategies that I regularly share with my clients to help them get the most from their charitable donations.

Donate by enjoying assets instead of cash

Giving money is easy. However, by offering securities that appreciate in value, you can give more money to your charity and pay less tax. That’s because you donate valued assets without paying capital gains tax, and your charity doesn’t pay tax when it sells them.

For example, if you want to donate $10,000, you can give it in cash. However, if your stock fund has grown by $10,000, consider donating to that fund. You won’t owe capital gains tax on the assets, you’ll still receive charitable deductions, and you’ll meet your giving goals, perhaps paying less out of pocket. Learn more about how it works

Bundle your contributions to maximize deductions

In 2020, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) created a temporary tax deduction that allows single or married filers to make qualified charitable cash donations of up to $300 without itemizing deductions. In 2021, the fee for married couples filing jointly increases to $600. The good news is that you still don’t have to itemize these deductions. However, the tax benefit is no longer “above the line”, meaning it does not reduce your Adjusted Gross Income (AGI). Additionally, this benefit is currently not available for the 2022 tax year or future tax years.

Although this tax deduction is currently useful for small donations, it may be best to plan and deduct in advance. When I help my clients develop their donation strategies, I advise them to “bundle” their donations over 1 year if this generates a higher tax advantage. Donor-advised funds are a great way to pool donations and spread out distributions over time.

When I help my clients develop their donation strategies, I advise them to consolidate their donations over 1 year if it brings them greater tax advantages.

-Taylor Turner, CFP®

Defer your annual deduction limit for up to 5 years

For your cash donations, you can deduct up to 60% of your AGI for the year. (Contribution from appreciation titles is limited to 30% of AGI.)

But if you want to pay more, don’t hesitate! You can keep charitable donations beyond your annual deduction limit for up to 5 years. This chart shows an example of how you can carry forward charitable donations over the annual deduction limit for up to 5 years. An example donation is $300,000; $100,000 in 2021, $60,000 in 2022, 2023 and 2024, $20,000 carried over to 2025.

Please note:

$100,000 limit does not apply in 2022 or beyond

Ready to rethink your donation strategy? Our advisors can help you. Call us at 855-534-8515, Monday through Friday, 8:00 a.m. to 8:00 p.m. EST. Consider QCD if you are 72

When you reach age 72 (or 70½ if you reached 70½ before 2020), you must begin receiving Required Minimum Distributions (RMDs) from your retirement account each year.

If you have not itemized your deductions and are of RMD age, you may consider donating your RMD to a qualified charity through a Qualified Charitable Distribution (QCD). This will satisfy your RMD and up to $100,000 per year will not be considered taxable income. A financial advisor can help you determine if this approach is right for you.

Distribute donations throughout the year

While most charities receive the bulk of their donations during “giving season” at the end of the year, many organizations need funds throughout the year. Consistent donations throughout the year, rather than large amounts, can help with this. It can also help you budget for larger gifts. With Vanguard Personal Advisor Services®, you can automate your donation by setting up an automatic withdrawal schedule for your QCD to be withdrawn monthly, quarterly, or whenever is convenient for you.

Name a charity as beneficiary or leave a bequest in your will or trust

Thinking about what might happen after you’re gone isn’t anyone’s favorite topic. However, I often encourage my clients to consider incorporating charitable bequests into their estate plans if they are concerned about giving too much, too soon. Think of it as a given legacy. Naming a charity as a beneficiary or leaving a bequest in your will or trust allows you to contribute to causes you care about without paying too much when you have to pay more for long-term care or other weary expenses. . Additionally, charitable bequests are eligible for estate tax relief and may have estate taxes reduced.

Wondering which organizations to donate to? Vanguard Charitable has tools to help you narrow your search.